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#DigitalSkeptic: Digital Royalties Will Stay a Royal Investor Pain

NEW YORK ( TheStreet) -- Pay Mike Huppe his due, he's got a pretty good line on the music business.

"The music business is complicated. I tell my students, you're lucky this is law school and not business school," joked Huppe, whose day job is president of SoundExchange, the Washington, D.C., automated music royalties collection organization, but who also teaches a class or two at the Georgetown University Law Center.

"Because if this was business school and you presented a business model that was anything like the music industry, you would fail," he said.

Huppe ("Like 'puppy,'" he said) is an investor hero only the Digital Age could create. For the past three years, this Harvard Law-trained attorney has directed one of the music industry's last and best shots at digging whatever gold is left from the ash and ruin of the Information Age music business: the 140-person SoundExchange, which conducts the insanely complex process of collecting so-called statutory licenses that more than 2,000 digital music services pay to play recordings of the commercially released music from 28,000 rights owners and 90,000 artists.

SoundExchange has a rare ear for hearing the money in the music. Over the past decade, its annual statements say it has collected $1.5 billion in royalties, with about $507 million in royalty receipts last year alone.

"The example I use is the R&B hit Respect," Huppe said. The song was written by Otis Redding. And he, and his estate, continue to collect royalties on the pure notes and lyrics of the song.

"That's called 'the publishing' in the music biz," Huppe said. "Then, a few years later, Aretha Franklin recorded that same song, made it a huge hit. But she and her label only control the recording rights. SoundExchange focuses on those recording rights, and more specifically the exploding market for the rights due from digital streaming music services like Pandora (P) iHeartRadio, Sirius XM (SIRI) Apple (AAPL)And what are Huppe's main words of investor wisdom?

"Too many people oversimplify this," Huppe said. "For better or worse, it is a very complex part of the music industry."

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